Rearranging the Property Tax Deck Chairs

Property taxes and how much they are hated by voters continues to grab the attention of state lawmakers. Whether the proposals are coming from Republicans or Democrats, though, they continue to ignore the core problem: homeowners believe their property taxes are unfair.

In Austin, a Democratic state representative has introduced a bill to give local governments the authority to do a sort of means testing on homestead exemptions for properties. The bill by Eddie Rodriguez, according to today’s Statesman, would allow a local government to give the biggest homestead exemptions to the lowest priced homes.

“It would give cities and counties more flexibility in doing property tax relief,” Rodriguez told the American-Statesman. “It’s all about the flexibility.”

This may help homeowners in an area like East Austin, where low-income homes are having their values pushed upward by gentrification. But Austin City Council member Ellen Troxclair makes a valid point that the proposal may provide little relief for middle class homeowners whose property value has gone up faster than their earnings.

Council Member Ellen Troxclair said the city should be mindful that some families with modest incomes might live in relatively high-value homes, and they might be denied needed tax relief. A million-dollar home is one thing, she said, but a family could have purchased a $100,000 home 15 years ago, only to see its taxable value grow to, say, $350,000 today, said Troxclair, vice chair of the council’s Audit and Finance Committee.

The underlying problem with the Rodriguez proposal is that means testing the value of a home does not means test the ability of someone to pay the tax.

On another property tax front, state Senator Paul Bettencourt has filed two bills—SB 1041 and SB 1042—to require greater disclosure in bond elections and government finances. SB 1041 would require bond elections disclose:

The amount of debt currently outstanding

Current debt service payments

The amount of new debt being proposed

The estimated per household burden being proposed.

In a news release, Bettencourt said: “We need to have clear and concise transparency requirements for the disclosure of debt information to voters in local bond elections. This legislation will mean that voters statewide will be able to confidently cast a more informed vote during these elections.”

On the surface, who could be against greater disclosure, but such a measure most likely would prompt voters to cast ballots against new bond spending. Even liberal Austin voters last year voted down bonds for a rail system when it was obvious the lines were unlikely to benefit them personally while adding hundreds of dollars to their home taxes each year.

There is a great deal of excitement in this session about government debt, making it look like deficit spending. I’ll try to visit this more at a later date, but essentially debt in and of itself is not bad. We go into debt to buy homes and cars, while governments go into debt to build roads and schools. The question is not so much what is the per capita debt burden—by that measure most homeowners would just give up—but whether a government is borrowing beyond its means to make debt service at the expense of daily services. The federal government borrows to operate, while state and local governments tend to borrow for capital purchases that can be likened to buying a home.

Comptroller Glenn Hegar has a web page dedicated to upcoming local bond elections. As you look through the list, you’ll see things like Cleburne ISD is going to triple its debt for school construction, while Gilmer ISD is going to more than double its debt. Kerr County is going to more than double its debt for a jail expansion. Marshall ISD currently has no debt but wants to borrow $109 million for new school construction. Montgomery County wants to borrow $350 million for roads. All told, local governments with May bond elections want to add $3.9 billion in borrowing to an existing $9.6 billion in bonded indebtedness.

If you look through the list, however, you’re not going to see obvious signs of local governments spending like they’ve gone wild on Spring break.

Comments

Texas Publius

“Homeowners” believe their property taxes are unfair? Try “most property owners” do. At least homesteads have a 10% annual appraisal cap. No such protection exists for employers, commercial property, industrial property, etc. Those folks’ property tax can go up 30%, 50%, 200% in one year without a govt entity even touching the rate.

jammerjim

Except the business property owners can sue the taxing entity to get their valuations lowered, and very often succeed. The bigger ones with deeper pockets, anyway.

I guess you think bringing suit against the government is cheap or free. You must think spending $100,000 to combat overly-aggressive government spending is a terrific business model. Those evil businesses, creating jobs and providing services and products. Your theory is flawed because you imply homeowners cannot also sue, and you also imply that having “deeper pockets” is inherently bad because they are profitable. Move to Cuba and live in the Worker’s Paradise so you can achieve Nirvana.

jammerjim

Bringing suit against “the government” here is suing appraisal districts. Local city and county districts, with smaller budgets — not exactly like going after the Feds. And it tends to be large companies with the lawyers to do it, too, like Marriott. I strongly suspect Marriott corporation has way more money than the average appraisal district’s legal department. And they *succeed* at these suits or they wouldn’t do it. A lot. Clearly, the companies find it cost-effective, or they wouldn’t do it. Or at least, that is what pie-in-the sky all government is evil types like yourself would have us believe.

And yes, homeowners can sue, and no doubt some do, but if you think its “not easy or cheap” to sue the government, what makes you think a homeowner can do it at will, when — as you clearly believe — it is so hard on a business?

It’s funny how your post contains almost everything a person needs to prove it wrong. Do you even see how you are contradicting yourself?

Finally I implied nothing about deeper pockets except that they have the means to sue, whereas individuals and small businesses usually don’t. The idea that I find profits evil is strictly a matter of your own imagination.

A big problem in Austin proper is that state government and UT-Austin sit on prime real estate that does not generate any property tax revenue for local government(s). This has distorted real estate pricing in downtown Austin which has spilled over into other parts of the City.

Obviously the State and UT-Austin will not be paying property taxes anytime soon.

So what’s the alternative? There isn’t. Austin property values will continue to go up until people stop seeing it as attractive, and when that happens, then Eddie Rodriguez will complain about the lack of economic growth.

Jed

what if he pinky-swears not to?

Jed

“most likely would prompt voters to cast ballots against new bond spending. Even liberal Austin voters last year voted down bonds for a rail system when it was obvious the lines were unlikely to benefit them personally while adding hundreds of dollars to their home taxes each year.”

actually, i think this makes a good argument *for* more detailed disclosure. because while i do believe that what you wrote here (about the cost benefit analysis done by Austin voters who rejected rail in November) is a correct assessment of what many voters thought they were voting against, i do not believe it is actually correct. i think your tax impact estimate is off by an order of magnitude. i may be mistaken, but in any case more precise ballot language would have eliminated the uncertainty.

No not socialist projects or top down zoning. I’m suggesting a more libertarian idea – getting rid of zoning entirely. So cement factories can be built next to schools next to bars next to group homes next to strip clubs. It should drive down valuations.

WUSRPH

You mean like in Houston, the largest city in the nation without zoning…..

Yes, Houston is also the cheapest of the boom cities in Texas. The problem with Houston, though, is that there’s still plenty of zoning in suburbs. The effect downtown is no-zoning, but most of the Houston metro area has the same zoning as Dallas or Austin.

Btw, I’m not sure I really advocate this, but it would be a nuclear solution to the problem.

WUSRPH

It sounds like a good idea until it is your house that is having a gas gas station built next to it.

Well obviously. Do you want cheap property taxes or a high end neighborhood…?

WUSRPH

Like most folks I want both…..and, like most misled people, I have been told many times that all that is needed to give us egg in our beer and let us have and eat our cake at the same time is to “cut out all the waste, fraud, corruption, duplication and unnecessary services” from government. But then perception has always been more important in politics than reality.

Jed

one of austin’s new city council members is on record as suggesting this as the best way to relieve affordability and property tax concerns in austin.

WUSRPH

As long as the state government refuses to adequately fund public education FROM STATE FUNDS but continues to rely on local funding as the primary source there will be a too heavy emphasis on the property tax. Some have proposed replacing it with a sales tax but that would require a excessively high rate that would actually increase the taxes paid by most Texans. Since the only real alternative is an income tax primarily dedicated to property tax replacement (as Bullock inserted into the constitution) and there is no chance that it will be adopted, the property tax will continue to be a heavy burden…barring the Legislature gutting it and–in the process–gutting public education. Bettencourt has already started down that road with another bill that would force an election if a local government’s property tax revenues increased by more than 4% in a year (not including gains from new construction) down from the current 8% rollback election requirement. He also proposes to cap the increase in value on a property at 5% per year, down from the current 10% level.

P.S. If you want to make property tax “progressive” by having it reflect the ability to pay, the answer is some sort of a circuit breaker system (as used in several states) that limits the total amount you can be required to pay to some percentage of your income. Rep. Rodriguez has been in favor of this in the past.

Blue Dogs

Big question is will this catch up with the Lone Star State in 30 years or so ?

WUSRPH

It is already beginning to do so….driving people out of Austin for example and, according to the big business types, serving as the largest barrier to expansion of business since the property tax is much more of a burden to them than any other tax they pay.

Blue Dogs

Explains why half of Austin’s Latino & African American populations are leaving the city in droves to the suburbs!
Will the same happen to Houston ?

WUSRPH

Higher home costs and the resulting taxes are certainly a factor in the decline in the percentage of Austin’s population represented by African-Americans….but not the only reason…Another reason is that “THEY CAN” because of the civil rights movement that broke down the legal barriers to their living in other than certain areas. The city’s Hispanic population is actually growing….some of which is from illegals but much of which is simply the result of human reproduction and the fact that legal and social barriers to their advancement have also been removed.

Jed

hmm. i don’t think we can spin the black flight from austin as a civil rights victory just because now they let people of color live in pflugerville.

Max Powers

Houston will do as it does now…continue to annex land. Land farther from the core will be cheaper.

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